Air Maintenance Estonia Opening New Hangar

Eastern European MROs see great potential to grow through low costs and quality service

Eastern Europe has been one of the biggest growth markets for air transport in recent years, and signs are that is not going to change anytime soon. The local MRO providers will benefit and expand their capabilities.

“We have positioned ourselves as the first-choice alternative to global brands,” says FL Technics CEO Jonas Butautis. “Our customers don't want to be working with the big guys.”

FL Technics has seen huge growth in the past few years and Butautis does not see the trend ending soon. The MRO provider views the former Soviet Union countries as its home market, but it does not maintain Eastern-built aircraft—yet. Butautis says his company is looking at adding Sukhoi Superjet capabilities, for both commercial and political reasons.

So far, it is mainly Airbus and Boeing aircraft services that the company has in its portfolio—C checks, component services, engine and line maintenance. While FL Technics sees itself as being already cost-competitive, its quick response time and efficient processes are its selling points to airlines.

Based on its success in Eastern Europe, FL Technics is looking at other regions to fuel expansion. “We are good at emerging markets,” Butautis says. The company has signed its first few contracts in Asia, which will be a focus area in the short- to medium-term. But it is also starting to look at Latin America and the Middle East, particularly in the fields of component services, line maintenance, engines and engineering work. For example, FL Technics has started offering line maintenance in Dacca, Bangladesh, and has “similar things in the pipeline,” Butautis says.

Money is no constraint in the expansion. “You don't need billions in MRO; tens of millions are sufficient and we have access to that kind of cash,” the FL Technics CEO points out.

In 2011, FL Technics grew its revenues by 90% and by another 80% in the first half of 2012. “We can double each year,” Butautis says, and he can see the point in a few years where FL Technics' annual revenues will exceed $1 billion. He declines to disclose the company's current revenues, however.

One of FL Technics' strengths is its broad customer base. Transaero, its largest customer, is responsible for just 8% of revenues. Lufthansa Technik or Turkish Technics have the advantage of a much larger in-house customer, but that also leads to greater dependence.

To expand its portfolio, FL Technics is looking at adding capabilities for Sukhoi Superjet 100 work. Butautis argues that Russia is putting a lot of effort into the program and that there will be a market for MRO service, too. “So why not support it?” he asks. In addition to gaining access to another market niche, such a move would give the company somewhat of a political boost in Russia, its biggest market.

As Eastern European airlines add the BombardierCRJ200 to their fleets, that aircraft type is another growth opportunity for the company.

Estonia could become another narrowbody maintenance hub as Air Maintenance Estonia (AME) realizes its strategy for growth with a new state-of-the-art hangar facility at Lennart Meri Tallinn Airport.

With just one bay in its existing hangar, the MRO knew it needed to build another hangar to expand its capacity, and when Lars-Olof Bolinder was appointed CEO in 2007, he was given the task of working with the airport management company to design the facility. The company's owners at the time, SAS Technical Services, lacked funds to realize the ambitious project, but in 2010, Baltic private equity firm BaltCap bought the MRO and signed off on the project almost immediately.

The €10.5 million ($13.5 million) construction bill was footed by the airport authority, with AME signing a 30-year lease. The finished product, designed by Ireland-based design consultant Ian Guinness, has two bays that can accommodate narrowbodies up to the Boeing 757-300, tripling AME's capacity.

AME has invested €3 million in new equipment and firmly embraced new technologies. Its tool store is fully unmanned and uses RFID for its tooling management system—it says it is the first MRO in Europe to implement the RFID provided by Omni-ID.

In addition, the tail logs at both of the new hangar's bays were custom-designed to be lifted and lowered to fit Boeing and Airbus tails. The entire design of the facility allows for a lean operation; much thought went into the location and size of key workshops, including sheet metals and heat treatment. The hangar also has a large parts store, which Bolinder concedes is “probably too big,” but it could be put to use by renting the space to customers. Bolinder stepped down as CEO last spring but remains an advisory board member.

While AME's work to date has been focused on Boeing 737 heavy maintenance, it recently received approval for Airbus capabilities and is negotiating with an airline customer to secure an Airbus A320 heavy-check contract.

The hangar could not have been completed too soon for AME. Bolinder says the company is already fully booked for the beginning of 2013 and, as advanced negotiations are taking place with a number of customers, the MRO is likely to find itself struggling for space in the near future. The next project, says David Williams, who succeeded Bolinder as managing director and CEO in April, is a paint hangar on the airport grounds, which he hopes will be finished in 2013.

AME is continuing to focus on growing its Scandinavian customer base. FL Technics is its main competitor in the region, but the strategies of the two MROs differ: FL Technics is mainly looking at the Russian airline market. Bolinder says there is plenty of room for both.

Tallinn's location and cost levels make AME an attractive location for Scandinavian operators. Ample parking space, for as low as €50 per day, is a factor that has also not escaped the attention of lessors that need to send a repossessed aircraft somewhere fast. And, since Estonia is part of the Schengen Zone, moving labor around the region for AOG incidents is also easier logistically, says a Scandinavian operator that is in discussions with AME to handle its fleet of Boeing 737s.

With these opportunities, AME is firmly positioned as a leading MRO in the Baltic region, and it has the potential to grow its customer base further into Western Europe as it proves itself a serious competitor to higher-priced, larger MROs.